UPDATE 3-US Treasury rules clarify foreign security reviews

(Adds comments from Treasury assistant secretary, lawmaker)

By David Lawder

WASHINGTON, April 21 (Reuters) - The U.S. Treasury on Monday unveiled proposed new regulations to tighten security reviews of foreign investments in U.S. businesses while allowing sovereign wealth funds to make small passive investments with less scrutiny.

The rules clarify that transactions in which a foreign entity acquires less than a 10 percent stake in a U.S. business are not automatically exempt from a review by the Committee on Foreign Investment in the United States (CFIUS).

"I think the new regulations reflect a strong continued commitment by the United states to maintaining our open investment climate and to safeguarding U.S. national security," Clay Lowery, the Treasury Department's assistant secretary of international affairs, told reporters.

"We think that the clarifications made by the proposed regulations will help us run the process in a more efficient and effective manner," he said.

The proposed regulations put into effect a law passed to strengthen reviews in the wake of Dubai Ports World's controversial 2006 deal to buy U.S. port operations, which was withdrawn after congressional objections.

The new law enshrines CFIUS reviews into federal statute and requires them for transactions in which a foreign entity can gain control of a U.S. business.

The Treasury's proposed regulations define control not in terms of percentage of shares or board seats, but as "the ability to exercise certain powers over important matters affecting a business," even if the foreign entity does not exercise that power.